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Offshore Mexico – Use It or Lose It

Mexico’s offshore activity increased over the past two years, largely dominated by independents in the shallow-water region within Round 1 production sharing contracts (PSC) and concession license blocks (Figures 1 and 2). Highlights include the Zama and Cholula discoveries by Talos and Murphy, development plan approval of Fieldwood’s Ichalkil field and Eni’s initiation  of production out of its Mizton phase one development. Operators expect all these projects to come online within the next three years.

Almost no wells have been drilled in deepwater Mexico. Shell has approval for exploration within its deepwater blocks and has invited rig contractor bids for as many as eight exploration wells – making this the most capital-intensive frontier exploration plan by an independent operator in the country. A portion of this program will target the Perdido Fold Belt, adjacent to Shell’s Whale and Blacktip successes in the US Gulf of Mexico.

The next three years are important to the future of the Mexican oil and gas industry. President Andrés Manuel López Obrador halted future block sales for at least three years starting 4Q18. The move, among others, aims to push operators towards capital deployment in their existing acreage. We believe the aforementioned projects, in line with operator guidance, could encourage a shift in policy back towards license auctions.

FIGURE 1 | Royalty Bids for Mexican Deepwater Blocks

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FIGURE 2 | Profit Oil Bids for Mexican Shallow-Water Blocks

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